cash collateralize

USA

In the context of financing transactions, the deposit of cash into a bank account by a borrower for the benefit of a lender to secure an obligation (security) of the borrower. For example, if a lender issues a letter of credit to a beneficiary on behalf of the borrower, the lender can require the borrower to deposit cash in an amount equal to the amount of such letter of credit as collateral for the lender. If the letter of credit is drawn by the beneficiary, the lender is obligated to pay the letter of credit and the borrower is obligated to reimburse the lender. If the letter of credit is cash collateralized and the borrower does not reimburse the lender when required, the lender can take the cash collateral as repayment for the letter of credit advance.